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Seed Capital From Angel Investors: Brad Feld, Managing Director, Foundry Group (Part 5)

Posted on Friday, Aug 6th 2010

By guest authors Irina Patterson and Candice Arnold

Brad: And then we look at the actual entrepreneurs behind the product, and we do that in concert. I don’t actually think you can really evaluate a product effectively without using it or having interactions with the entrepreneurs so, we tend to lump those two together.

If we’re uninterested in the product, we tend to pass right away. If we are interested in the product, then we spend as much of our time as possible with the people to determine whether or not we want to be partners with them in the long term.

So it’s not necessarily that we are evaluating them as specific entrepreneurs, because I think everybody has a style and a way about them, and they are going to grow over time. But we’re trying to evaluate from the frame of reference of, Do we want to be long-term partners with these folks? That also gives them a chance to decide if they want to be long-term partners with us.

So, much less reference checks and resumes and what have you done before, and much more how are we going to work together, what would that look like, and how do we feel about this?

Irina: How do you conduct your due diligence?

Brad: After we’ve made a decision about whether we want to invest, we’ll typically do some formal diligence, both legal diligence and reference checks and checks on the people and things like that. We do that after we’ve made our decision to invest versus before we decide to invest.

Irina: How many investments have you made in the past twelve months?

Brad: We’ve made seven or eight. We make about eight new investments a year.

Irina: And what was the dollar amount you said before each investment?

Brad: It varies. The smallest amount that we invested was probably $250,000. The largest amount I think we invested was $8 million. Typically, the median amount that we invest in the first round is probably $2 million. We have some that are small and some that bigger. It varies a lot by company.

Irina: How long does it take a company to receive the funding from your group?

Brad: The shortest is a couple of weeks and the longest could be a year from the first interaction to the time of investment. I would say typically it’s a couple of months, but it varies dramatically. It’s a case-by-case situation.

Irina: Do you think in terms of valuation of the company?

Brad: I don’t think we have a typical valuation because we invest in so many different places. We’re early-stage investors, so sometimes for seed investments, we’ll be investing sort of in low, single-digit million pre-money type valuations. And other times, our valuations will be in the teens. So, it just varies with the stage of the company and how much we are investing.

This segment is part 5 in the series : Seed Capital From Angel Investors: Brad Feld, Managing Director, Foundry Group
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